NAFTA end game: Countries now scrambling to conclude a preliminary deal

The NAFTA nations have yet to decide how to proceed: present something preliminary now and hammer out a more detailed agreement later, or seek a more formal agreement immediately by scaling back the scope of talks

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WASHINGTON—The NAFTA countries are pushing intensely over the coming days to reach an agreement, Foreign Affairs Minister Chrystia Freeland suggested Friday as she met her U.S. and Mexican counterparts in Washington.

The scope of such a deal is still undetermined.

Sources say the countries have yet to decide on whether to settle for a preliminary statement of principles now, and negotiate a final deal later; or seek a more formal agreement immediately, and if necessary to pare back the list of negotiating objectives to achieve that.

One thing is clear: the countries are staring at the calendar, see political deadlines approaching, and are working to wrap up some sort of agreement before the task becomes a practical impossibility this year.

The countries’ lead political ministers dined together Thursday in Washington, then held a day’s worth of meetings Friday, from which Freeland emerged sounding positive, even referring to a potential end game in the talks.

“We’ve entered a new, more intensive stage of engagement,” Freeland told reporters as she exited the U.S. Trade Representative’s office, across from the White House.

“That always happens around now in a trade agreement … The pace of progress increases as you get closer to the end.”

That intensive engagement is going to continue in the coming days, she said. Freeland was expected to leave Washington later Friday, but officials and ministers are now negotiating frequently by phone.

A plethora of incoming political events has added urgency to the process: Mexico’s presidential election campaign, the U.S. legislative midterms, and rules in U.S. law that will soon make it impossible to conclude a ratification vote in Congress this year.

One trade insider said there are two realistic possibilities for a quick agreement being weighed.

One is to scale back the scope of the talks, and drop a bunch of controversial issues; the other is to present something highly preliminary this spring and keep negotiating the details after July’s Mexican election.

That’s because the idea of a full overhaul of a new NAFTA that is not only detailed, but ambitious, and quickly completed, is a fantasy, said trade consultant Eric Miller of the Rideau Potomac Strategy Group.

“An agreement-in-principle is anything you want it to be,” he said.

“(But) a deal on a fully renegotiated NAFTA by the end of May, as the Trump administration would like, simply will not happen. There just isn’t enough time.”

It’s unclear the countries have even discussed, in any detailed way, major sticking points—like dairy, which is a perennial top irritant in Canada-U.S. trade talks and would need to be resolved to have a thorough deal.

Autos have been the central issue so far.

The Trump administration’s overarching goal is to pull manufacturing jobs back from Asia and Mexico, and in recent weeks it has agreed to modify its most controversial auto proposal.

The new U.S. proposal would grant credits to parts-makers that pay wages beyond $15 an hour and help those companies more easily meet the proposed U.S. floor of 85 per cent North American parts for a car to avoid a tariff.

It’s an extension of a Canadian proposal from January. Canada first suggested revamping the old formula for calculating regional content, and installing a new system of credits for certain behaviour.

Canada’s presentation actually illustrated its argument with a picture to emphasize that the auto industry is rapidly evolving, and needs adaptable new rules to account for changes in materials, fuel sources, and software.

The Canadian proposal was presented with an image of the cartoon family The Jetsons, zipping along in their flying car in the year 2062, under the headline: “Rules of origin for the 21st century.”

Obtained by The Canadian Press, the proposal included eight elements. Nearly half the plan involves credits to help achieve the 85 per cent via spending on research and development; using steel and aluminum from this continent; and building new plants on the continent.

The American suggestion builds on that.

The U.S. is proposing to credit companies somewhere between 25 to 35 per cent of the way toward that tariff-free threshold if they pay at least $15-an-hour wages.

Sources say Mexico is wary of the proposal and its potential to steer away jobs, but has not shot it down entirely, and is likely insisting on certain conditions that would soften its impact.

One industry source said the idea is a no-go if it’s used as a stick—to punish companies that have lower salaries. But he said it could be designed as an incentive, to reward high salaries: “The question is, can you make an effective carrot?”

He said details that matter include the length of the phase-in period for the policy to take effect.

Upon leaving the talks Friday, Canada’s U.S. ambassador, David MacNaughton, couldn’t say whether an actual deal might be concluded soon, or whether countries were aiming for a more preliminary outline of principles. The current attitude is to achieve whatever can be achieved this spring, he said.

“I think we’re trying to get as much done as we possibly can,” MacNaughton said. “We’re continuing to make progress.”

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